I always enjoy coming into this chamber, but it has been even more enjoyable since I have been governor and have had the great pleasure of addressing this joint session. Today is no exception.

But today I come with a rush of mixed emotions. This will be the last time I will present this body and the people of Illinois with a budget for the state. And it may be the last time I will get to address you as governor.

As you know, I spent 10 years here, and I have always had great respect for the work you do and the potential to do good things that help people and change lives. I have seen it happen here many times and the memories fill me with satisfaction. The work is hard, the emotions sometimes frayed, but in the end it makes you feel good about public service. It is a higher calling.

I would like to take a minute, if I could, for a point of personal privilege. When I leave office next January, I will have been elected 10 times to state office over 30 years, thanks to many of you in this chamber and others throughout the state. Thank you for 30 great years.

I also have been very fortunate to have a devoted, understanding and loving family by my side for every second of those 30 years. The best thing I ever did was to marry Lura Lynn. She is a wonderful partner and a devoted mother and grandmother. Today I am proud again to introduce to you my family. The First Lady of Illinois Lura Lynn thanks for all you have done for me and for the people of Illinois. Nancy and John Coughlan, and their children: Ann, John, Mary Cate, Nora and Elizabeth. Michael and Lynda Fairman; with Michael, Kristen, Kathryn and our youngest granddaughter, MacKenzie Rose. Jeff and Julie Koehl, with Lauren, Alex and Molly. Nick and Joanne Barrow, with Andrea and Nick. Jim and Jeanette Schneider; and last, our son, George, Jr. Thank you for all your support and love.

Our great state is a much different place than it was when we last met here. Times have changed that's a fact. The events of the last 12 months have forever altered our future. I believe we all understand that. The challenges before us are great. So we must continue to work together as we have for the past three years.

Today I present you with my final budget and my final report on the state of our state. The Fiscal Year 2003 budget I propose today is lean, fair, and balanced. And because of the progress we have made over the last three years, the state of our state is stronger than ever before. This budget contains no tax increases.

Today I want to talk about the accomplishments we've achieved together and about the challenges that remain before us. Do you remember where we started from three years ago? Let me remind you.

Seated in the gallery with us today is someone who has a huge stake in this budget. I'd like to introduce you to Jonathan Reed-Wood, of Springfield. Jonathan is three years old and was born in January of 1999 the month that I took office as governor. He represents all of the children in Illinois that have been born in the last three years, and all of the children who live in Illinois.

Before he was born, our state faced many daunting challenges. Three years ago, some 3,600 of the 4,200 school buildings in this state were in urgent need of repairs or upgrades. Many of our children were being taught in hallways, boiler rooms and broom closets.

Three years ago, our state had not built a single mile of new highway since the 1980s. Traffic congestion, at places like the Hillside Strangler, was becoming intolerable. Three years ago, some of our elevated transit structures that carry hundreds of thousands of commuters every day were crumbling, and some bridges were over a hundred years old.

Three years ago, Illinois ranked a miserable 48th among all the states in the amount of park and recreation land set aside for public use and future generations. Illinois ranked worse 49th among all the states in the use of technology to deliver government services. In 1999, nearly 200,000 of our children in this state were uninsured, lacking coverage for even basic health care. Three years ago, surveys showed that some 40 percent of our citizens over age 65 had no prescription drug coverage and had to struggle every day to find the money to pay for the medication they needed. More than 10 percent of our seniors said they simply did without, or cut the dosages their doctors prescribed.

When I took office, our social service agencies lacked the funding necessary to expand the reach of their offerings to provide children and the elderly, single parents, the working poor and the disabled with essential programs to improve their quality of life. But since Jonathan was born, we've addressed those challenges, and we've overcome them.

Let's take a moment to look beyond the rhetoric and the criticism of shallow naysayers that we hear everyday and look at our record of accomplishment. Together, we made the children of Illinois our highest priority period. During Jonathan's lifetime, we've done a lot of great things for his generation.

With the budget I'm presenting to you today, we will increase state support for education by $1.45 billion to record levels of funding, just like we said we would. During his lifetime, we've built almost 12,000 new classrooms 244 brand new schools and 2,800 renovations and additions. During his lifetime, we've hired more than 10,000 new teachers, just like we said we would. During his lifetime, we've invested $150 million in computer hardware and software for classrooms. Just like we said we would, we've linked every school district in this state to the Illinois Century Network, providing students with a fast connection to the wonders of the Internet. When he is ready, he will be able to attend the nation's top-ranked system of higher education. And if he needs help paying for college, financial aid will be there. Since 1999, state government has helped one out of every five college students in Illinois pay their tuition. That's a great thing.

During his lifetime, we have boosted funding for health care and human services to more than $10 billion per year and we've kept it at that level. While he has been alive, KidCare enrollments have increased by 500 percent. Fewer teenagers are having babies. And more of our children are graduating from high school. Infant mortality rates have gone down. Less children are living in poverty, and fewer are being abused and neglected. The number of children in state-subsidized day care has grown substantially, enabling their parents to find and keep good jobs.

In his lifetime, we've boosted state funding for child immunizations and health screenings, so this year more than 1.1 million children get a good start in life. Over the last three years, Illinois has led the nation in arranging permanent adoptions for at-risk children and in reducing the number of kids in temporary care. While he has been alive, we've boosted funding by more than 25 percent for substance abuse treatment and prevention services. And our state ranks 9th among the 50 states in how we're using our share of the nationwide tobacco settlement to battle smoking. That's a very good thing.

During the lifetime of this three-year-old, we helped 100,000 people move from welfare to work. We initiated the first-ever state-level Earned Income Tax Credit in Illinois to help 700,000 of the working poor. We developed the toughest rules in the nation against predatory lending practices. We negotiated an HMO reform package, including a patients' bill of rights, to help the 3 million people covered by HMOs. We provided 400,000 low-income senior citizens with prescription drug coverage so they no longer have to simply "do without." And we helped 320,000 low-income households with heating assistance at an average of $500 per household. We can all be proud of the fact that Illinois is the top state in supporting this program. LIHEAP has had no greater champion in the Illinois General Assembly than our friend and colleague, Senator John Maitland. I'm happy to announce, that from this day forward, the program will be named the "Senator John Maitland LIHEAP" program. God bless you, John.

We've reclaimed 5,600 acres of urban "brownfields" and provided record funding -- $1.5 billion to help local communities improve drinking water supplies and wastewater treatment. During their lifetime, we've graduated 383 new troopers from the State Police Academy. We enacted common-sense laws to fight gun violence in our neighborhoods. We doubled the number of parole officers. And we took back control of our prisons from gangs. We dramatically improved law enforcement technology, moving Illinois from 35th among the states to first in just three years. And, we initiated a good, hard look at the fairness of our state's criminal justice system. We are absolutely committed to creating a system that is fair to everyone and concerned about justice for all a system that has no tolerance for error.

And finally, together over these last three years we've transformed government. Through Illinois FIRST, we invested $137 million in public safety equipment, facilities and vehicles all to help keep our homes, schools and neighborhoods safe and capable of withstanding a natural disaster. And, instead of ranking 49th in the use of technology, late last year we were named the top "digital state" in the nation the best state in the union. From worst to first in just three years that's quite an accomplishment. We've improved state services and made government more efficient.

We've eliminated 385 obsolete portions of state statutes, 1,500 unnecessary sections of the administrative code and by the time we're through, I will recommend the elimination of 100 unnecessary boards and commissions. And, during the lifetime of this child, our economic development policies have led to more than $8.9 billion in new investments by companies in Illinois and the creation or retention of more than 104,000 new jobs.

I'm very pleased and proud to report to you that next week, Site Selection magazine, a trade publication for private developers, will announce that Illinois has the best economic development programs in the nation. We'll be taking the crown the number one ranking away from Michigan, which has held the title for the last four years.

These are among the many good things that we have accomplished during Jonathan's life. His life -- and the lives of other children are better today -- because we worked together and decided their lives would be better.

Unfortunately, if you listen to some of the commercials on TV, you might get the impression that we've accomplished nothing during the past three years. But this budget also presents us as the stewards of the people's government with many challenges as we begin 2002. As Abraham Lincoln once said, "the occasion is piled high with difficulty." But we have never been afraid of difficulty or a challenge.

Our primary challenge in this year's budget is to make sure that Jonathan's world gets a little better. This budget proposal allows us to do that. Every year that I have served the people as governor, I have asked all of you Republican and Democrat -- to join me in building a "New Illinois." Each year, I have asked you to put partisanship aside and place the common good of the people and our state foremost in your actions. Sometimes, that has been a challenge. But we always have succeeded in finding a common ground that resolves our differences.

Today, one more time, I renew my invitation and again extend my hand in friendship. Let's all work together to do great things for Illinois.

The first challenge presented by this budget is making sure that state spending fits in with less-than-robust revenue collections that have drained this year's available resources. That means we're going to have to tighten our belts. But having said that, I want to make it clear that this government has not been spending wildly, as some have charged. Many of the sound bites I hear from the campaign trail are anything but sound. As Lincoln said, "he has the right to criticize who has the heart to help."

We have a balanced budget because we have kept our spending under control. National reports show that government spending in Illinois has been below the national average for the last two years. If you include the Fiscal Year 2003 budget I'm presenting to you today, the four-year average annual growth in state spending has been only 3.5 percent. And, this administration is the only administration in the last 30 years since 1972 to propose four straight budgets that will pay for an entire year's bills with the same year's revenue. Since I took office, we have never had to borrow from future revenues. That's an unprecedented record.

But as we begin to debate this budget, I would remind you that last May this General Assembly approved a budget that was $1.2 billion more than the budget I submitted to you in February. If that happens again this year, I will veto the entire budget. You can take that to the bank.

The other factor making a balanced budget more difficult is the continued large increase in health care spending, particularly in the Medicaid program. Last year, Medicaid spending across the country rose by an average of 11 percent. Because of the cost controls we enacted since December of 2000, we were able to keep our growth in Medicaid for the year to 6.4 percent. Nonetheless, we still spend almost $8 billion a year on Medicaid. Since I took office, we have increased the amount of money we spend on Medicaid to doctors, pharmacies and especially hospitals by $1.2 billion. That increase is more than what we've given to education in the last three years. It's one of the biggest parts of the budget.

But this year is just like last year, and the experts expect that Medicaid spending in Fiscal Year 2003 will continue to rise. The cuts we have made in Medicaid last year and this year have been distasteful for many of us, but they have been necessary to keep our entire budget in balance and under control. And the amount we spend is still $1.2 billion higher than what we were spending in 1999. The challenge to us created by these factors is difficult, but not insurmountable. Here's how I propose to do it:

As I prepared this budget, I simply did what I asked you to help me with in January: I cut 3 percent more out of each agency's existing budget, for a total 5 percent reduction across the board. The "base" upon which we start the process for FY 2003 is $22.3 billion, or 5 percent less than the level of appropriations for the current year that we agreed to last May. Lowering the spending "base" cannot be done without pain. To begin with, this budget is predicated on the lowest state employee headcount in more than a decade 62,000 positions. That means downsizing our workforce by 3,800 positions. I don't like saying that. I won't like doing that. But I will do that to insure the fiscal stability of this state.

My hope is that the majority of these changes can be accomplished through attrition, aided by an early retirement program for qualified state employees. I will work with you and the unions representing our employees, on the exact details of such a plan. But it is my expectation that we can save the state treasury as much as $50 million with an early retirement program in place. That projected $50 million is money that we can add back into other programs.

Secondly, this state budget calls for the downsizing of state facilities. In most cases, these facilities represent some of the oldest and most costly infrastructure that we have. As I did last fall with the ancient Joliet Correctional Center, the time is right to consolidate our operations in more modern facilities. I propose closing the Vienna Correctional Center and the Valley View Youth Center in St. Charles and moving the inmate populations to other facilities. Some staff from those facilities will be able to transfer to other jobs in the corrections system.

Also, I propose that we delay the opening of the new maximum security prison in Thomson for another year to avoid absorbing the costs of opening that prison. Closing these facilities is made possible because of a prison population that is not growing as fast as it has in the past. The budget for 2003 allows us to open more than 3,900 new beds at the new Lawrence Correctional Center in Southern Illinois, the new reception and classification center in Joliet, and new youth centers in Kewanee and Rushville.

We will also downsize at the Department of Human Services as part of our long-term goal of changing the way the agency provides services to the mentally ill and the developmentally disabled. We will continue to change our state facilities to a point where as many of the residents as possible can have a greater say in the care that they receive and where as many as possible can be housed in community-based living arrangements.

This budget includes funding for 310 new positions in CILAs Community Integrated Living Arrangements that help the developmentally disabled live away from traditional state facilities. In doing that, I propose that we close the Zeller Mental Health Center in Peoria and the developmental disability unit at the Singer Mental Health Center in Rockford. These changes coincide with my previously announced decision to downsize the civil commitment section of the Elgin Mental Health Center. Again, all of the residents affected by these decisions will be placed in other appropriate care settings, and many staff members will be able to stay on within the DHS system.

As I have said for months, I have been available to talk with AFSCME and all of the labor unions that represent state employees about ways we can possibly avert layoffs and other budget reductions. I have been willing to discuss options, as governors in other states have done successfully. In Iowa recently, the state's major unions, including AFSCME, opened their contract and agreed to a temporary wage freeze in order to prevent layoffs. To date, our discussions with most labor unions in Illinois have been very helpful in mitigating our budget situation. My thanks go out to Teamsters in all parts of this state, the Illinois Federation of Public Employees, our craft and trade unions, the Illinois Nurses Association and other groups for stepping up to the plate and taking responsible actions. I will never understand union leaders who would rather see their members laid off than consider temporary contract changes that would allow people to keep their jobs. We still have an opportunity to discuss these options as we continue to develop this budget.

I've told you about the big cuts. But the spending reductions will go deeper than that. The cuts I am imposing at the start of the 2003 budget process will affect every agency and will reach into many, many programs. You will find the detail in the budget book.

Most areas of state government will have to do more with less. These cuts are not going to be popular. To soften the blow somewhat, I propose that we enact this year a temporary tax amnesty similar to the successful program the state initiated during the 1980s. It is estimated that we can generate $35 million in one-time revenues that we can use to mitigate further spending reductions.

In identifying the new money that is available for us to spend, I have carefully considered where we should direct these precious resources. Not every agency can be treated equally. Our schools get more money. Corrections will get more money. Our commitment to state employees' health insurance costs requires more money. And human service programs will get more money. We will have disagreements about where state funds should be spent. But I'm confident that we will be able to reach a common ground.

We must set priorities. And I have done my best to keep my priorities as close as possible to those that you and I have agreed on during the past three years: Education. The future of our families. Public safety and homeland security.

For the fourth year in a row, education and workforce training is my top priority. I will not bend on that commitment. The economists project that during Fiscal Year 2003 we will see state tax revenues grow by $480 million. And, in keeping with a pledge I made four years ago, I propose that our schools get $245 million of that new revenue. That's 51 percent of all new state revenues. But that's not enough for education in my book.

For years in Illinois, we have struggled with the funding disparity that exists between school districts, a disparity caused by a funding system tied directly to land values. This disparity creates a huge and unfair gap between the "haves," or schools in areas where property values are high and rising, and the "have-nots," or schools where land values are low and stagnant. For years we in Illinois have tried to bridge this gap and to raise the "foundation level," or the amount of money we guarantee for every public school student in the state. Since 1999, we have raised the foundation level by $335, or about $111 per year.

I propose that we undertake the most historic change in school funding for decades in Illinois. To provide our local schools with greater flexibility in how to spend the dollars we provide them, I propose that we consolidate 22 separate grant programs and put all of those resources about $500 million into the General State Aid distributive formula. That would have the effect of raising the "foundation level" per student to almost $5,000 an increase of about $400.

This commitment, supplemented by $222 million in new federal funds, will provide almost $4 billion for local school districts for them to allocate on priorities they establish at the local level.

Contrary to what you may have read, we are not cutting this money out of the budget. It's still there. We're giving school districts the money without all of hassles of paperwork. We're giving local school boards the power to make decisions at the local level for the students in their schools. We're giving school districts money to teach, rather than money to process paper.

Right now, to access the money available in those grant programs, school districts apply to go to the State Board of Education. That's too much red tape. By cutting that bureaucracy we can shift $20 million from administrative costs right into our classrooms. Most of the 22 grant programs are used by school districts to keep pace with state and federal accountability standards in reading, bilingual education, math, science, truant and dropout programs and gifted education. And with the enactment last month of President Bush's "No Child Left Behind" act, every school district will have more reasons to meet these standards. If schools don't meet those standards, they are placed on an academic watch list and parents have the right to transfer their children to another school. Under the proposal in this year's budget, we'll be giving school districts the flexibility and the funding to meet the needs of their students.

As I said, the new federal education act places a larger burden on school districts to perform. So I've directed the State Board of Education to develop an implementation strategy that puts our state accountability standards into synch with those in federal law. We have a few years to make whatever changes are necessary. But it's important that our schools begin this transition process this year. The State Board will report back to you and me this summer with recommendations on what Illinois needs to do to comply with testing requirements and learning standards for our children. I am confident that our students, their parents and our teachers are up to the challenge.

In the gallery with us today are two of Illinois' finest teachers. They represent all of the teachers in Illinois who work hard every day with our children and grandchildren. Ms Anne Davis, the president of the Illinois Education Association, and Peter Rapinchuk of Tinley Park, who is one of the 500 nationally-certified teachers we currently have in Illinois.

Peter teaches at Andrew High School in Chicago's suburbs. The number of nationally certified teachers in Illinois the highest achievement for a classroom teacher -- has grown from a total of 37 in the last three years.